Flushing Out The Fraudsters

The laundry may be touched by a thousand hands. The laundry may look fresh, but it’s possibly a bit dirty. The laundry bears watching. That’s transaction laundering we’re talking about, specifically tied to sales of illegal narcotics, but the practices of laundering are broad enough, as Dan Frechtling, G2 Web Services CPO, described it, to hide just about any exchange for illegitimate purposes.

“We see more of this going on through the real web,” said Frechtling, “because that’s where the buyers are.” This applies to counterfeit goods and online narcotics — just about anything that people want to cloak under a blanket of seemingly respectable buying behavior.

Consider the fact that the ubiquitous online storefront can be a cover for nefarious peddlers of drugs, both illegal and addictive. “A lot of attention is on the Dark Web … and even cryptocurrency. And it sounds really different and spooky and mysterious,” said Frechtling. “But quite a bit goes on in the ‘visible web’ and with real currency and real credit cards.”

Frechtling stated that the proliferation of entry points for those who would commit money laundering has grown even as eCommerce has grown. “That becomes attractive for the bad guys, because it is one step removed from what the acquiring banks can see and what the processors can see.” The storefronts have emerged as a viable option for narcotics, as surveys of more than 100,000 self-identified drug users across 50 countries who bought illegal drugs and pain meds reveal. The alarming statistic, as noted by Frechtling: Online sales surpassed retail, in-person transactions, indicating that these consumers trust the internet more so than they would family, friends or the traditional drug dealer who has a physical supply on his or her person.

“The drug peddlers are acting like any other successful eCommerce vendor,” said the executive, “with buy one, get one free loyalty programs and money back guarantees. You don’t get anything like that from street dealers.” Beyond the guise of transaction laundering, where legitimate merchant accounts are used to process activity for other businesses, there’s also another way for buyers to purchase drugs online, through a different path, such as when sellers use a different billing descriptor to mask what is actually changing hands.

And though mobile wallets and cards are not especially new conduits for fraudulent transactions, the “new nuances,” as described by Frechtling, should be looked at, such as “what Paypal’s alliance with Visa, Mastercard and China UnionPay means. The people who were the disruptors — like PayPal was the biggest disruptor of card payments online — now we find it will incur higher interchange than debits because it needs to embrace the card networks to grow. And it will be present in more areas.” Mobile wallets are synonymous with credit cards — as consumers set up wallets to connect to credit cards. “Mobile wallets are a great way to buy illicit goods,” especially ones that are funded on prepaid cards. The card networks do not see the illicit transactions, just the ones that are used for the initial prepaid transactions.

“The most intuitive storefronts, and others in the merchant accounts providers, shopping carts, gateways … all legitimate but they all create places to hide,” and online money laundering will displace traditional cash money laundering, said Frechtling. Traditional money laundering proves cumbersome, while transaction laundering sidesteps that, with the movement of funds electronically and a mix of legitimate and illegitimate transactions.

How does one stop these bad actors and keep them from the legitimate onramps of eCommerce? The first step, said Frechtling, is to recognize that the problem is today and to not wait to see “until I get hit and then start putting up the fences.” Internally, all levels of an organization should be aware of the problem, not just risk and compliance, but sales, customer support and dispute and complaint professionals.

Education is key, said Frechtling, especially through regular meetings, focused on prospective laundering “and certainly for a postmortem of confirmed laundering.” Externally, with vendors, multiple warning systems need to monitor merchants within a firm’s portfolio “and canvass the world wide web [for suspicious activities] and see if any of that is flowing through your merchants.”

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To learn more about this topic, attend a live discussion with G2 CEO Allison Guidette and MPD CEO Karen Webster on Wednesday, October 19 at 1 PM (EST) by completing the registration form shown below: